A very successful issue of $ 500 million Eurobonds was priced at minimum 6.75 percent after having a book closure of around $2 billion.
There were 215 accounts applied for bonds, having geographic distribution of Asia 24 percent, Europe 54 percent, Middle East 11 percent and the US offshore 11 percent. By investor type, banks got 38 percent, funds 38 percent, retail 12 percent, hedge funds 8 percent and others 4 percent.
The three lead managers, Deutsche Bank, J.P. Morgan and ABN Amro, said that the Pakistani delegation handled the roadshow with particular sophistication considering the time that the country has been absent from the market.
Though the leads requested the Pakistan delegation to upsize the issue because of remarkable response from the market, but they restrained. The market had an expectation for an upsize.
Indeed, parties seeing the deal termed it a classic bond trade offering rare value, yield and becoming talk of the town.
This issue priced at MS+335bp and compares to the Turkey 09s which were at MS+374bp (6 3/4pc) when Pakistan launched, although they have rallied substantially since though, and the Philippine 09s which were at MS+376bp (7 1/8pc).
Comparable Turkey, Philippines and Brazil were not exactly perfect as they have already the weight of heavy issuance under their belt. So, technically, Pakistan came inside on a better yield basis than these three because it had no issue since 1997.
The fee of 30c would be distributed among lead managers as 42.5 percent Deutsche Bank + JP Morgan and 15 percent ABN Amro.
Early responses from the European-based investors hinted a viable yield target of 6 7/8pc although most seem to be non-committal at this stage, preferring to wait and see approach.
A few fund managers regarded the trade worth seeing for investment, who even were not willing to invest below 10-year maturity bonds.
The market kept the Musharraf risk analogous to the Putin risk when discussing political risk issues. However, an encouraging sign was the US waiver for Pakistani debts and its reiterated confidence in the country.
Some saw the 6 7/8pc yield area making it a better credit than Philippines, Brazil or Colombia.
These respective 2009 issues trade at yields around 7.35 percent, 8.36 percent and 7.22 percent, despite the relatively better aggregate ratings for these compared to Pakistan.
The new five-year issue will aim to set a benchmark as well as help in improving Pakistan's image with investors and, thus, encourage capital flows. Proceeds are expected to be used to draw down more expensive bilateral and multilateral debt. This will be Pakistan's first bond for 6 years.
Pakistan recently appeared stabilised after struggling through tough political and economic times.
These include its nuclear testing in 1998 (and subsequent sanctions), the restructuring of its international debt in 1999, and an uneasy and fractious relationship with India over occupied Kashmir.
However, Pakistan's stance on terrorism and their siding with the US-led coalition (over Afghanistan) has helped in galvanising economic progress in the form of massive debt relief.
For instance, Pakistan is likely to get a grant allocation of $ 700 million from the US for financial year 2004-05, part of a five-year aid package that totals $ 3 billion - currently under review through the US congress.
The $395 million of the latest grant had already been approved, two-thirds of which will be used to retire debt owed to the US.
Pakistan has just prepaid $1.17 billion in expensive external debt to the Asian Development Bank, which carried interest rates ranging between 11 percent and 6.5 percent.
With the prepayment of loans, Pakistan's total debt and foreign exchange liabilities will come down to $ 33.5 billion. Four years back, these debts were $38 billion.
Both exports and imports are growing at double digits, while the current account has been in surplus for three years in a row. Foreign exchange reserves were $ 12 billion to January 2004, having been down to $4.3 billion at the end of 2001.
It is believed that this year's growth forecast of 5.3 percent could be surpassed.
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